5 Key Things You Must Know If You Are Starting Dividend Investing
Investing in dividend paying stocks is a cool way to put your money into work. Why? Because it has many advantages than its alternatives like bond investing. If you are interested in all of the pros and cons of dividend investing, you can check our article on the matter here, in this post we are going to explain some key and very basic things one should know, if he/she wants to invest in dividend paying stocks. If you are completely new in this filed, you’d better check out our reading about the very basics of dividends. The current article is about the basic terms that characterize a dividend paying stock – what exactly they mean and how to read them.
Important Dividend Dates
When a company pays dividends, 4 main dates are involved in this process: declaration date, date of record, ex-dividend date, payment date. To read more about them, follow the link from above and read the detailed article about them. Here is what each of this dates mean:
Declaration date – this is when the board of directors declare that the company is going to pay a dividend to its shareholders. It announces who much will be paid, the date of record and when the payment will be made.
Date of record – this is the date before which you must be in the company’s shareholders book, in order to receive the dividend. This date is determined by the company and it is used to determine the most important date for a dividend paying stock – the ex-dividend date. Please note, that this is not the date up to which you must buy shares to get dividend. For example if the date of record is 01.01.2015, this doesn’t mean that if you purchase shares a day before this date you will catch a dividend payment. This is because each stock purchase needs a few days to be settled, depending on the exchange it is traded. This is why you need the ex-dividend date
Ex-dividend date – the most important date – you get the dividend if you buy or own the shares before this date and you miss the dividend if you own or buy shares on or after this date. As simple as that. This is the first date the shares are traded without the current dividend payment. This means also that if you sell your shares on this date, you still catch the dividend.
Payment date – this is when the dividend payment is made to the shareholder, this is when you get your money.
This is the percentage that determines the rate of return of your dividend investment (i.e. 7.45%). It’s calculated by the following formula: